CRR Article 113(6): core UK group applications


CRR Article 113(6) permits a firm, subject to conditions, to apply a 0% risk weight for exposures to certain entities within its consolidation group. CRR Article 400(1)(f) then requires that exposures that would be assigned a 0% risk weight under CRR Article 113(6) are fully exempted from the large exposures limit stipulated in CRR Article 395(1). 

Application process


Firms wishing to apply a 0% risk weight to relevant exposures should make a formal application to the PRA, through which they should seek to demonstrate how the conditions set out in CRR Article 113(6)(a)–(e) are met. 


The PRA will assess individual applications against CRR Article 113(6) on a case-by-case basis. The PRA will only approve applications where the conditions stipulated in CRR Article 113(6) are met. 


Firms should note that the PRA will still make a wider judgement whether it is appropriate to grant this treatment even where the conditions in CRR Article 113(6) are met. In making that judgement, the PRA will consider whether group entities are strongly incentivised to support each other.  The PRA will also consider whether the treatment is consistent with the overall business model of the firm and furthers the PRA’s safety and soundness objective. Where an application is made by an RFB or any other PRA-authorised person that is a member of a group containing an RFB, this judgement will include an assessment of the impact of the proposed treatment on the PRA’s general safety and soundness objective in relation to ring-fencing.3


  • 3. See section 2B of FSMA.


It is the PRA’s intention to continue to apply a high level of scrutiny to applications under CRR Article 113(6). 

Application of criteria


In relation to CRR Article 113(6)(c), the PRA will consider the following non-exhaustive list of factors when assessing whether the condition is met:

  • regular and transparent mechanisms for communication are established within the consolidated group to enable the senior management, business lines, the risk management function and other control functions to share and access information about risk measurement, analysis and monitoring;
  • internal procedures and information systems are integrated, consistent and reliable throughout the consolidated group so that all sources of risk can be identified, measured and monitored on a consolidated basis and also, to the extent necessary, separately by entity, business line and portfolio; and
  • key risk information is regularly reported to the central risk management function of the consolidated group to enable centralised evaluation, measurement and control of risk across the relevant group entities.


In relation to CRR Article 113(6)(d), the PRA will consider the condition to have been satisfied if:

  • the relevant counterparty is incorporated in the United Kingdom; or
  • it is an undertaking of a type that falls within the scope of the Council Regulation of 29 May 2000 on insolvency proceedings (Regulation 1346/2000/EC); and
  • it is established in the United Kingdom other than by incorporation; and
  • the firm can demonstrate that the counterparty’s centre of main interests is situated in the United Kingdom.


In relation to CRR Article 113(6)(e), the PRA will consider the following non-exhaustive list of factors when assessing whether this condition has been met:

  • the speed with which funds can be transferred or liabilities repaid to the firm and the simplicity of the method for the transfer or repayment. As part of our overall assessment, we would consider one of the indicators to achieving prompt transfer as being ownership of 100% of the subsidiary undertaking;
  • whether there are any interests other than those of the firm in the undertaking, and what impact those other interests may have on the firm’s control over the undertaking and the ability of the firm to require a transfer of funds or repayment of liabilities;
  • whether there are any tax disadvantages for the firm or the undertaking as a result of the transfer of funds or repayment of liabilities;
  • whether the purpose of the undertaking prejudices the prompt transfer of funds or repayment of liabilities;
  • whether the legal structure of the undertaking prejudices the prompt transfer of funds or repayment of liabilities;
  • whether the contractual relationships of the undertaking with the firm and other third parties prejudices the prompt transfer of funds or repayment of liabilities; and
  • whether past and proposed flows of funds between the undertaking and the firm demonstrate the ability to make prompt transfer of funds or repayment of liabilities.


When demonstrating how CRR Article 113(6)(e) is met, the PRA considers that in the case of a counterparty which is not a firm, the formal application should include a legally binding agreement between the firm and the counterparty. This agreement will be to promptly, on demand by the firm, increase the firm’s Tier 1 capital by an amount required to ensure that the firm complies with the provisions contained in CRR Part Two (Own funds) and any other requirements relating to Tier 1 capital or concentration risk imposed on a firm by or under the regulatory system. 


For the purpose of demonstrating compliance with CRR Article 113(6)(e), the PRA considers that the agreement to increase the firm’s Tier 1 capital may be limited to Tier 1 capital available to the undertaking. It may reasonably exclude such amount of Tier 1 capital that, if transferred to the firm, would cause the undertaking to become balance sheet insolvent, in the manner contemplated in section 123(2) of the Insolvency Act 1986. 


The PRA does not expect a firm to which this section applies to use any member of its core UK group (which is not a firm) to route lending, or to have exposures to any third party in excess of the limits stipulated in Article 395(1). 


The PRA will typically expect to receive the following information and documents in support of an application:

  • an up-to-date organisation chart of the fully consolidated entities in the group, specifying, in relation to each entity, whether the entity is an institution, financial institution or an ancillary services undertaking as those terms are defined in the CRR;
  • a description of the risk management policies and controls of the counterparty;
  • written policies describing group company risk measurement, evaluation and control procedures in the areas of credit risk, market risk, liquidity risk and operational risk and a description of how these policies are applied by each entity;
  • a description of the process that ensures a prompt transfer of own funds and the repayment of liabilities; and
  • a statement signed by representatives and approved by the management body of each of the parent undertaking and the relevant group entities attesting that there are no material practical or legal impediments to the transfer of funds or repayment of liabilities between group entities and the firm. This applies to all entities that do not need to provide a legally binding agreement as set out in paragraph 2.8.